d ve a direct effect on late-stage investors, who are most aware of these final prices and are concerned with exiting their investments in a timely manner. But it also matters to earlier-stage investors.

While VCs always care about those final exit prices, they care far more about getting their portfolio companies to their next round of financing. VCs at each stage of the pipeline are deeply cognizant of the valuations that will be offered in the next stage. The high valuations being offered by late-stage investors leads to higher valuations from growth-stage investors, and then from early-stage u investors all the way to seed funds.f

With a massive pot, unicorn poker players are willing to put up equally massive bets.In The Event Of A Hard Landing

Of course, that excellent exit market can suddenly turn south for any number of geopolitical and business cycle reasons. Unfortunately, late-stage investors are put in a tough place during changing market conditions due to the lack of liquidity offered by startup equity.

Public investments are elastic – any investor can buy one share or one million of them at will. As market conditions change, then so can the size of your stake in a company. Think that a typhoon hitting Thailand may affect the availability of Apple’s new watch? Sell the stock. Your timing doesn’t even have to be impeccable to make money, so long as your thinking is ahead of the rest of the market.

This is precisely the opposite of private company investments. Here, you have a window of opportunity to get your money into a company during its fundraise. Miss the window, and you may never get another opportunity to invest. Once in, you have little ability to change your ownership either up or down. It’s a one shot bet in private equity versus a continuous one in the public markets, greatly increasing the risk of these investments. If you close an investment on Thursday, your whole thesis could blow up by Monday. There is nothing you can do about that.

Late-stage investors are not venture capitalists. They are often public market investors who aren’t finding great opportunities in the stock market due to those high stock prices, and are thus looking for pre-IPO companies that are “assured bets” and trying to invest in them early. They need downside protection since their goal is not to get a 100x return on one of their investments, but to get a 20% return with high probability and little risk of capital loss.

And it is here that we see where the bets are being made. So long as the technology sector continues its fast-paced growth, all of those investments will continue to make sense at the valuations we have been seeing. But if something changesgtt, then all of those investors are locked into assets with few places to offload them. That matters less with a $20 million early-stage round, but it can have serious repercussions with a $400 million late-stage investment.

Most investors are clearly betting that the market we are seeing is going to continue for some time. Every investment firm has the ability to fold and walk away, but the pot is so large right now. With unicorn poker though, that pot can suddenly vanish without a trace. Investment firms are taking calculated risks – let’s hope they are holding a flush and not a high card.